Gas bills set to jump 16% as European reserves hit decade low

European gas markets are tightening as winter approaches, pushing wholesale prices to their highest point since the post-invasion spike of 2022. The cost of a megawatt-hour hit €97, or £81, on Monday, reflecting a sharp increase in demand for heating across the continent.

In the United Kingdom, the month-ahead gas contract rose by 4% to 240p per therm. This marks the highest level since December 2022, a period when prices surged following Russia's full-scale invasion of Ukraine.

Supply concerns are driving the price increase. Reports indicate that the US and Israel are planning renewed strikes on Iran after the US midterm elections. This geopolitical tension pushed oil prices to $117 a barrel on Friday. Although the Brent crude benchmark fell by roughly 2% on Monday, it remains above $114 a barrel.

European gas storage levels have dropped to their lowest point in more than a decade. Current levels sit at 75% capacity, well below the seasonal average of 80%. The decline results from reduced exports from Qatar and higher summer consumption for cooling systems.

Regulators in Britain warn that the country will face some of the highest energy costs in Europe this winter. The UK relies heavily on imports because it has some of the smallest domestic gas reserves on the continent, a consequence of long-term dependence on North Sea production.

Data from the Office for National Statistics shows the UK spent a record £4 billion on power imports in the year ending in August. Half of that total went toward electricity from France. The country also made near-record payments to start up gas plants while compensating wind and solar operators to switch off due to grid bottlenecks.

Households are preparing for the financial impact. Analysts predict energy costs will rise by 16% in January. This increase will bring the typical annual dual-fuel bill to the equivalent of about £2,000. Stock markets showed some relief on Monday, with the Stoxx Europe 600 gaining 0.3% and the FTSE 100 rising 0.4%.